Departmental Overhead Rates

Mariposa, Inc., produces machine tools and currently uses a plantwide overhead rate, based on machine hours. Harry Whipple, the plant manager, has heard that departmental overhead rates can offer significantly better cost assignments than can a plantwide rate.

Mariposa has the following data for its two departments for the coming year:

Department A Department B

Overhead costs $($expected$)$ $$720,000$ $$180,000$

Normal activity $($machine hours$)120,00060,000$

Required:

$1.$ Compute a predetermined overhead rate for the plant as a whole based on machine hours.

$fill in the blank $1$

$5$

per machine hour

$2.$ Compute predetermined overhead rates for each department using machine hours.

Department A $fill in the blank $2$

$6$

per machine hour

Department B $fill in the blank $3$

$3$

per machine hour

$3.$ Suppose that a machine tool $($Product X$75)$ used $60$ machine hours from Department A and $150$ machine hours from Department B$.$ A second machine tool $($Product Y$15)$ used $150$ machine hours from Department A and $60$ machine hours from Department B$.$ Compute the overhead cost assigned to each product using the plantwide rate computed in Requirement $1.$

Product X$75$ Product Y$15$

Plantwide: $fill in the blank $4$

$1,050$

$fill in the blank $5$

$1,050$

Repeat the computation using the departmental rates found in Requirement $2.$

Product X$75$ Product Y$15$

Departmental: $fill in the blank $6$

$810$

$fill in the blank $7$

$1,080$

Which of the two approaches gives the fairest assignment?

Departmental

$4.$ Repeat Requirement $3$ assuming the expected overhead cost for Department B is $$360,000.$

Product X$75$ Product Y$15$

Plantwide: $fill in the blank $9$

$fill in the blank $10$

Departmental: $fill in the blank $11$

$1,260$

$fill in the blank $12$

$1,260$